Stocks Climb Modestly as Early Rally Fizzles
Wall Street’s attempt at a rally fizzled Monday, with the major indexes rising in response to a Middle East cease-fire and then giving up most of their gains later in the day.
Investors initially saw the cease-fire between Israel and Hezbollah as a buying opportunity after last week’s losses, and the Dow Jones industrial average surged as much as 115 points before retreating to more modest gains.
Analysts had warned that the rally could be short-lived because of a pair of important inflation reports due this week: the Labor Department’s producer price index today and the consumer price index Wednesday. With the Federal Reserve warning last week that inflation remained a concern, stocks could revert to the volatility of recent weeks if incoming economic data show rising prices on the wholesale or consumer levels.
“We’re up now on the cease-fire and oil prices, but it’s hard to be an optimist right now, at least in the short term, because of the uncertainty over the economy and rates and the Fed,” said Jay Suskind, head trader at Ryan Beck & Co. “As the week wears on, everybody’s going to be focusing on the economic numbers, and the debate over inflation will come back again.”
Crude futures fell as traders saw less risk of a supply disruption in the Middle East after the United Nations-mandated cease-fire took effect. A barrel of light crude settled at $73.53, down 82 cents, on the New York Mercantile Exchange.
The Dow Jones industrial average rose 9.84 points, or 0.1%, to 11,097.87. The Standard & Poor’s 500 index edged up 1.47 points, or 0.1%, to 1,268.21. The Nasdaq composite index climbed 11.33 points, or 0.6%, to 2,069.04.
Treasury yields hit two-week highs as the Israeli-Hezbollah truce led to some unwinding of safe-haven trades and as investors braced for this week’s inflation data.
“The cease-fire in the Middle East, at least for the moment, seems to be actually taking place, so that takes a little bit of the risk premium out,” said Adam Brown, director of the Treasury trading desk at Barclays Capital in New York.
The yield on the benchmark 10-year Treasury note rose to 5% from 4.97% on Friday. The dollar gained against major currencies, while gold futures slipped $5 to $628.50 an ounce.
The stock market’s early rally came on light trading, suggesting a lack of depth to the buying.
“You get this spike up on light volume, you just don’t have staying power,” said Scott Wren, equity strategist for A.G. Edwards & Sons. “There’s nothing more to this rally than relief over the Middle East, and you’ve got the economic data later in the week. I just don’t think you can put too much into what’s happening today.”
A late-session report from the Philadelphia Federal Reserve may have also contributed to the rally’s retreat. The Fed’s survey of 51 economic forecasters predicted slowing economic growth and higher inflation in the near term -- one of Wall Street’s worst-case scenarios that would lead to shrinking corporate profits and lower stock prices.
Earlier in the day, stocks were boosted by the British and U.S. governments lowering their terror alerts. Britain downgraded the threat of terrorism to “severe” from “critical” four days after foiling an alleged plot to blow up airliners bound for the U.S. The U.S. Department of Homeland Security cut the threat level to high from severe.
In other market highlights:
* As oil prices declined, a gauge of energy stocks lost 1.5% for the biggest decline among 10 industry groups in the S&P; 500. Exxon dropped 48 cents to $69.25. ConocoPhillips fell $1.56 to $66.82.
* A gauge of computer-related shares advanced 1.1% for the biggest increase among 10 industry groups in the S&P; 500. Dell, which reports earnings Thursday, gained 17 cents to $21.24 after Michael Dell told reporters that Vista, the upcoming version of Microsoft’s Windows operating system, “will probably increase sales.”
Hewlett-Packard added 24 cents to $33.29. It reports results Wednesday.
* Ford Motor climbed 46 cents to $7.83 after Bear Stearns raised its rating on the stock to “outperform” from “underperform.”
Analyst Peter Nesvold cited cost cuts at Ford and said he expected the automaker to announce a “potentially material restructuring” plan. He cut General Motors shares to “underperform” from “peer perform.” The shares gained 9 cents to $30.20.
“Most of the good news is behind GM but ahead of Ford,” Nesvold wrote. “The way to make money on the Detroit Big Three is to trade around turnaround efforts.”
* HealthSouth added 36 cents to $4.46 after its second-quarter loss narrowed to 13 cents a share from 16 cents a year earlier.
* Whole Foods Market rose the most in the S&P; 500. It added $3.54, or 7%, to $50.91 after JPMorgan Chase & Co. raised its recommendation on the shares to “neutral” from “underweight.”
